Dean Baker's Blog, page 557

Credit Default Swaps Do Not Insure U.S. Debt

Suppose an insurer in New York sold insurance against a nuclear bomb being dropped on the city. Is this insurance against nuclear war?

As a practical matter, only a fool would think that this covered his financial bases. If there were actually a nuclear bomb dropped on New York, this New York based insurer would almost certainly be destroyed along with whatever it had insured.

This is the same deal as with credit default swaps on U.S. debt. If it turns out that the United States defaults on i...

Steny Hoyer Is Hearing Voices

That's what the NYT told readers today. It quoted House Minority Whip Steny Hoyer as saying:

"The markets have made clear that a short-term extension is not sufficient and would result in very serious consequences." Actually the markets make their sentiments known through movements in interest rates. And these movements show no evidence whatsoever that the markets would be concerned about a short-term extension of the debt ceiling.

If Mr. Hoyer thinks that the "markets have made clear" that a...

The Post Takes a Strong Stand on the Budget in Front Page Editorial

In a front page editorial, the Washington Post warned about the "nation's runaway debt," which is projected to rise to near its it 1946 level by 2021. At that point the debt will be still be less than half as large relative to GDP as Japan's is today. Japan can still sell long-term debt in private financial markets at interest rates of less than 1.5 percent, but the Post obviously feels strongly about this point.

The editorial also insisted the issues that separate President Obama and the...

Bad Economics at Economix

Princeton economist Uwe Reinhardt gets his economics mixed up in his piece today. He follows Michael Spence and Sandile Hlatshwayo in touting the virtues of the non-tradable sector of the economy at the expense of the tradable sector. However, there is nothing that is inherently non-tradable, it depends on the institutional structure we put in place.

We can make it easy for people in the United States to get our health care from more efficient providers overseas. The same applies to legal...

Raising the Medicare Eligibility Age to 67 and Cutting Social Security Benefits by 3 Percent Is Not a Big Deal

That is what the Post effectively told readers in a front page article. It told readers:

"If both sides agree, that measure [a short-term agreement on the debt ceiling] could also include some tax and entitlement changes, such as ending breaks for corporate jets, raising the Medicare eligibility age or changing the measure of inflation used to adjust Social Security benefits. However, the largest tax and entitlement changes are likely to be left until next year."

"Entitlement changes...

Global Warming?

Maybe I've missed it, but I haven't seen any discussions in the context of the current heat wave. Of course there is no direct connection between global warming and any specific weather event, but given that there is a well documented trend of warming over recent decades, the heat wave might be a good time to have a piece or two on the topic.

Put another way, suppose that there was a terrorist attack against U.S. citizens after a Democratic president had decided to close Guantanamo and end...

The NYT is Wrong: Officials Do Not Say That Medicare Is Not Sustainable In Its Current Form

That is what Republicans say. Officials, like the Medicare Trustees, say that the program faces a modest shortfall over its 75-year planning horizon. The projected shortfall is around 0.3 percent of GDP or less than one-fifth of the amount that we increased annual military spending since September 11th. The projected Medicare shortfall is down by more than 75 percent from when President Obama took office due to the cost controls put in place in the health care reform bill.

In fact, the...

David Brooks is Worried that the United States Will Lose Its Control Over Jupiter

I didn't see Jupiter mentioned in the piece, but loopy is loopy, so talking about controlling Jupiter or "the end of American economic supremacy" make just about as much sense.

The immediate reference is "doing nothing could lead to default." If the question is default, that would end the supremacy of the U.S. financial industry. The downturn from a default would be very bad news for all of us, but the end of the supremacy of the U.S. financial industry would likely be good news for the rest ...

NPR Warns that Not Raising the Debt Ceiling Will Increase Net Exports and Create Jobs

That was the local news spot at the top of the hour on Morning Edition (WAMU). The anchor said ominously that a failure to raise the debt ceiling would lower the value of the dollar. Of course those who know economics all gave a big cheer at that one and immediately sent a note to their representative in Congress urging default (okay, not those of us who live in DC).

Anyhow, the extent of confusion on the dollar in the media is truly incredible. Do you want our goods to be less competitive...

The Cost of the Bailout As Calculated by Allan Sloan

Allan Sloan had a lengthy piece in the Post business section last week examining the cost of the bailout. He showed that the vast majority of the money was repaid with interest, with Fannie and Freddie being the big exceptions. He followed this up with an explanatory piece today. This analysis is worth a bit of additional explanation.

Sloan did exactly what he said, he did a straight cash out, cash in analysis. How much money did the government lend to financial institutions and how much did ...